KNIGHT FRANK REPORT NOTES PROMINENCE OF SINGLE-ASSET TRANSACTIONS .
Hotel transactional activity in the U . K . in Q1 2023 more than doubled compared to the last quarter , after a muted end to 2022 , a recent report from Knight Frank revealed . Deal volume , however , has remained significantly below the five-year quarterly average of £ 1.2 billion or around $ 1.5 billion .
The completed deals were almost exclusively single-asset transactions , with less portfolio activity , but a 50 / 50 split between provincial U . K . and London completed sales .
Corporate investors in the U . K . were most active in terms of sellers , representing more than 40 % of the transactions , with an additional 23 % attributed to investment sales conducted by U . K . institutional investors .
The most active buyers were legacy hotel asset buyers with deep knowledge and understanding of the hotel sector in the U . K ., be it focused hotel investment groups or corporate hotel owner-operators , the report said .
These investors , who were focused on active ownership and long-term value creation , accounted for more than half of deal activity in Q1 , with most of the activity targeting opportunities in crucial regional destinations .
The Fattal Group ’ s purchase of the Grand Hotel Brighton for £ 60 million , with an additional £ 16 million investment planned , and Pandox ’ s acquisition of The Queens Hotel in Leeds for £ 53 million are two instances where healthy balance sheets and divestments elsewhere in their portfolios freed up capital to help ongoing profitable and opportunistic expansion .
FUDAMENTALLY SOUND The country ’ s hotel market continues to see strong performance , with RevPAR returning to or surpassing pre-pandemic levels , helping to drive deals . Investment in the sector was buoyed by robust levels of domestic travel , consisting of strong leisure and improving corporate demand , which often yielded longer and more profitable stays .
“ With interest rates remaining high , access to finance and the cost of debt will continue to make certain investors more reticent . Yet , large amounts of capital remain to be deployed , and with investors taking a long-term view , the outlook for increasing levels of investment into the sector is positive , with potential for both portfolio and big-ticket single-asset deals to take place later in the year ,” said Philippa Goldstein , senior analyst of hotels and leisure at Knight Frank .
LONDON CALLING London saw five significant deals in the first quarter . These include the £ 55-million sale of the Covent Garden Hotel to Firmdale by CBRE Investment Management ; Dalata Hotel Group ’ s £ 44-million purchase of a recently built 192-key hotel in Seven Sisters ; and the £ 42-million sale of the long-leasehold interest of the Holiday Inn Regents Park Hotel , also by CBRE Investment Management .
Despite interest rates continuing to climb and inflation likely to drop more slowly than the initial forecast by the Bank of England , investment interest in the hotel sector will remain resilient , Knight Frank contended . London and key gateway cities remain the top targets of investors .
Multiple assets are presently being marketed for sale , including the Sheraton Grand Hotel & Spa , Edinburgh , which , with a guide price of more than £ 100 million , could become Scotland ’ s biggest singleasset deal since 2018 . Meanwhile , three Hoxton hotels in London are reportedly for sale and could fetch as much as £ 450 million total , with Ennismore likely to retain the management contracts .
Home Office contracts are having a material structural impact on the country ’ s hotel market concerning both the occupational and investment market .
Knight Frank ’ s research has predicted that around 350 hotels totaling 35,000 rooms across the U . K . are being used to house refugees and asylum seekers or are commissioned to use as social housing . This drop in the market ’ s total capacity of stock is aiding the sector ’ s recovery .
Meanwhile , the dynamics of the investment market are also affected by these Home Office contracts , with less distressed or forced sales currently taking place .
“ Having traded strongly over the past 12 months , we are beginning to see more sizeable , prime-located assets benefit from a competitive sales process , demonstrating resilience in pricing . Due to the ongoing rise in the cost of debt , the requirement for higher returns from certain buyer profiles provides an opportunity for other investors to gain a foothold into the market ,” said Henry Jackson , head of hotel agency and partner at Knight Frank .
Though there ’ s a continuing lack of distress in the market , increased activity from owners actively managing their portfolios is apparent , Jackson said .
“ Owners are now more willing to realize the value of their assets , to free up capital to support the increased burden of debt , or for reinvestment through repositioning and ESG improvements , or for continued expansion ,” he said .
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